Cochlear (COH)

At least two brokers have upgraded
Cochlear
to “buy" following another product recall from a major rival.

Advanced Bionics has withdrawn its HiRes 90K cochlear implant worldwide after problems were reported by patients, and UBS believes the product is unlikely to return to the market for six months – giving Cochlear a clear opportunity to pick up another 15 per cent of the market. This is AB’s third recall in 10 years.

The broker is assuming a 10 per cent short-term market share gain for Cochlear, with half of that being retained in the longer term. This prediction has led UBS to lift its earnings forecast by 5.3 per cent for both 2010-11 and 2011-12, and upgrade its price target on the stock to $82.40 from $78.

Merrill Lynch has also upgraded its earnings forecast by around 5 per cent for the current and next financial years. As a result, its price target has been increased to $81.75 from $75.90 a share.

“Based on the last two [recalls] we do not expect the recall to last longer than several months but we do expect AB to structurally lose market share for the remaining life of this series of implant," said the broker.

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“With AB’s parent Sonova indicating a new implant generation is two years plus away, we expect Cochlear will take market share over this period – increasing their share position from around 70 per cent presently to around 75 per cent."